2003-VIL-334-DEL-DT

Equivalent Citation: [2004] 270 ITR 560, 136 TAXMANN 575

DELHI HIGH COURT

Date: 12.11.2003

COMMISSIONER OF INCOME-TAX

Vs

SR. FRAGNANCES LTD.

BENCH

Judge(s)  : D. K. JAIN., MADAN B. LOKUR

JUDGMENT

The judgment of the court was delivered by

D.K. JAIN J. - This appeal by the Revenue under section 260A of the Income-tax Act, 1961 (for short "the Act"), is directed against the order dated December 11, 2002, passed by the Income-tax Appellate Tribunal, New Delhi (for short "The Tribunal") in cross appeals, being I.T.A. No. 5856/Delhi of 1997 and I.T.A. No. 6085/Delhi of 1997, by the assessee as well as the Revenue in respect of the assessment year 1994-95.

According to the appellant, the order of the Tribunal involves the following substantial questions of law:

"1. Whether the order of the learned Income-tax Appellate Tribunal deleting the addition of Rs. 1,35,80,987 is perverse and contrary to the evidence and tax audit report of the statutory auditors?

2. Whether the learned Income-tax Appellate Tribunal has ignored the reasoning of the Assessing Officer and the tax audit report which does not mention any shortage of supari and catechu and was right in drawing distinction between shortage and wastage to delete the addition made by the assessee?

3. The hon'ble court may be pleased to amend and modify the questions of law suggested above and/or formulate new/additional questions of law?"

Briefly stated, the background facts, giving rise to the present appeal, are as follows:

The respondent, hereinafter referred to as the assessee, is engaged in the business of manufacture of pan masala. During the course of assessment proceedings for the aforementioned assessment year, the Assessing Officer noticed that in the tax audit report furnished in Form No. 3CD against the column "raw material", the shortage was shown as "nil". Similarly, under the head "finished products" against the closing stock at the end of the previous year, shortage and percentage thereon a dash mark was given, indicating that the figure was nil. On further examination, the Assessing Officer found that a loss of 38,223 kgs. had been claimed in the consumption of "supari". He also noticed a shortage of 858 kilograms in the catechu account. The Assessing Officer felt that on the one hand, the auditors had pointed out no shortage of any raw material, and on the other, the aforenoted shortages in supari and catechu accounts had been claimed by the assessee. He also noticed that in the supari account, the assessee had also debited 821 kilograms on account of wastage due to moisture and weighments. Not being satisfied with the explanation furnished by the assessee, the Assessing Officer made an addition of Rs. 1,35,80,987 to the trading results, on the ground that the assessee had processed more pan masala and had sold the same outside the books of account.

Being aggrieved, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals). Though the Commissioner agreed with the Assessing Officer in principle, taking into consideration the cost price of the supari and the explanation of the assessee that the wastage in catechu account took place in grinding and it was claimed only at 2.72 per cent, as compared to earlier years, where the wastage was much higher, the Commissioner restricted the addition to Rs. 40,51,638 on account of shortage of raw supari. Thus, the assessee got a relief of Rs. 95,29,349.

Not being satisfied with the order of the Commissioner, the assessee as well as the Revenue carried the matter in further appeal to the Tribunal. By the impugned order, the Tribunal has deleted the entire addition made by the Assessing Officer to the declared trading results. While granting the said relief, the Tribunal held as follows:

"Even assuming that the books of account were rejected on cogent reasons, it was not mandatory that some trading addition has to be made. The facts of each year have to be considered separately. We find that during the year under consideration, the wastage of supari was 13.61 per cent, of catechu 2.72% and of cardamom, it was 27.69 per cent. In the immediately preceding year, the wastage claimed by the assessee and allowed by the Assessing Officer was much higher. Even in the earlier years, the wastage allowed by the Assessing Officer was much higher. We also find that since last eight years, the trading results have not been disturbed though in many years, the assessment under section 143(3) has been completed. The Assessing Officer has also not pointed out any defect in the books of account except observing that in the books, the auditors have shown the shortage at nil. As mentioned earlier, it was not shortage but wastage which was shown by the assessee. As there was no shortage in the auditors report, the nil figure was mentioned. We, therefore, hold that the assessee has correctly depicted the figure in the balance-sheet as per Schedule 6. As no cogent reasons have been advanced by the Assessing Officer/Commissioner of Income-tax (Appeals) for rejecting the books of account, we hold that the rejection of books of account was uncalled for. The wastage claimed by it in the earlier so many years have been allowed by the Assessing Officer. We, therefore, hold that the partial addition sustained by the Commissioner of Income-tax (Appeals) is not justified and the same is deleted. In view of our findings, the Revenue's ground of appeal on this issue is also dismissed."

Assailing the order passed by the Tribunal, Mr. Sanjiv Khanna, learned senior standing counsel for the Revenue, has submitted that the Tribunal has failed to appreciate that the stand of the assessee was contrary to the tax audit report, which is to be accepted as reflecting the correct state of affairs of the assessee. It is also urged that the Tribunal has laid too much emphasis on the word, "shortage" and "wastage", which was only an argument of convenience adopted by the assessee when they were confronted with the discrepancy in the audit report and the accounts.

We are unable to persuade ourselves to agree with learned counsel.

There is no gainsaying that the Tribunal being a final fact-finding authority, it is required to take into account every fact for and against the assessee with due care and record its finding thereon. At the same time, if the Tribunal has arrived at certain conclusions of fact upon consideration of all the evidence and material before it, its finding is final and cannot be interfered with. Nevertheless, if a finding of fact is arrived at by the Tribunal after improperly rejecting evidence or it is based on material partly relevant and partly irrelevant or it is based on no evidence, such a finding may be vitiated, giving rise to a question of law, falling within the scope of section 256 of the Act. However, the question for consideration is whether the impugned order involves a "substantial question of law", the phrase employed in section 260A of the Act, under which provision the present appeal has been preferred. Obviously, a distinction has to be drawn between the expression "question of law" and "substantial question of law".

Although the expression "substantial question of law" is not defined in the Act or in any other statute where a similar expression appears its true meaning and connotation is now well settled by various judicial pronouncements. Recently in Santosh Hazari v. Purushottam Tiwari [2001] 251 ITR 84 (SC), while dealing with an analogous provision contained in section 100 of the Code of Civil Procedure, their Lordships of the Supreme Court have observed that to determine whether a question of law raised in a case is a "substantial question of law", the tests laid down by the Constitution Bench in Chunilal V. Mehta and Sons Ltd. (Sir) v. Century Spinning and Manufacturing Company Ltd., AIR 1962 SC 1314, still hold good. The five tests so laid are: whether (i) it is of general public importance; or (ii) it directly or substantially affects the rights of the parties; or (iii) it is an open question in the sense that it is not finally settled by the Supreme Court; or (iv) it is not free from difficulty; and (v) it calls for discussion of alternative views.

Tested on the touchstone of the aforenoted broad principles, we are of the view that the impugned order does not involve any substantial question of law. In the instant case, as noted supra, while deleting the subject addition, the Tribunal has taken note of a very significant factor, namely, the wastage in supari, catechu and even cardamom, for the preceding years, has been much higher than in the year under consideration, but still the accounts of the assessee were accepted for the last eight years, particularly when assessments in respect of some of the years, were made under section 143(3) of the Act, i.e., after scrutiny of accounts. The Tribunal has observed that the addition was made on the basis of doubts and surmises held by the lower authorities.

The findings recorded by the Tribunal, which are essentially findings of fact, are based on factors, which cannot said to be irrelevant. In our opinion, no question of law, much less a substantial question of law, arises from the order of the Tribunal.

The appeal is misconceived and is dismissed accordingly.

 

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